Statement of
WILLIAM E. KENNARD
CHAIRMAN
FEDERAL COMMUNICATIONS COMMISSION
Before the
SUBCOMMITTEE ON COMMUNICATIONS
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
on the
REAUTHORIZATION OF THE FEDERAL COMMUNICATIONS COMMISSION
JUNE 10, 1998
Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to
discuss with you reauthorization of the Federal Communications Commission.
To its credit, this Subcommittee has just held a series of FCC oversight hearings and
listened carefully to four of the Commission's operating bureau chiefs describe the work of
their bureaus and their efforts to carry out the Commission's statutory responsibilities as
efficiently and effectively as possible. The FCC and the American people are well served by
this Subcommittee's interest in the Commission and the matters before it. I also believe the
American people are well served by the Commission's hard-working and dedicated staff,
which works tirelessly to serve the public interest.
Today, I hope to add to what the Subcommittee has already learned about the
Commission by focusing with you on three principal subjects which define our mission: (1)
universal service, (2) competition and consumer choice, and (3) streamlining the FCC, or to
paraphrase Chairman Burns' description at the Cable Services Bureau hearing last week,
creating a smarter, leaner Commission for the digital age. I will also update you on our 1998
biennial regulatory review, highlight for you some of our recent accomplishments, and outline
what we hope to accomplish during the coming year in each of the FCC's four primary
activity areas: authorization of service, policy implementation and rulemaking, enforcement,
and public information services.
Faith in Competitive Markets
I begin by sharing with you my view as to where I see the Commission headed and
how we get there. The most important virtue the Commission can exhibit at this time is
steadiness and faith in both the players and the discipline exerted over them by a competitive
market. I believe in the certainty of innovation that will come from the markets.
I view the Commission's role as facilitating innovation. Innovation comes when we
believe in the power of free markets to produce affordable services through unfettered
competition. This, after all, is the principle that undergirds the landmark Telecommunications
Act of 1996.
Simply stated, our goal is to promote competition and consumer choice in all
communications markets. As Chairman, my objective is to be able to keep my hands off the
regulatory levers for as long as practically possible, to provide certainty so that the forces of
the marketplace can act. At the end of the day this, I believe, is the strategy that will realize
the vision we all share for a truly competitive and burgeoning telecommunications
marketplace in the 21st century.
Universal Service
Universal service has kept our Nation connected for the better part of the twentieth
century. I intend to work with Congress to continue fulfilling the promise of universal
service, as we enter the twenty-first century.
Maintaining affordable telephone service in rural and high cost areas has been at the
heart of universal service for many decades. The challenge of the 1996 Act is to make high
cost funding consistent with the new age of competition in telecommunications. Universal
service subsidies have to be available to eligible telecommunications carriers willing to
provide service in high cost areas if we are to see competition in those areas. At the same
time, we have to remove implicit subsidies from interstate access charges that the FCC
oversees, as states do likewise with respect to services that fall within their jurisdiction, such
as the rates for business services and intrastate toll charges.
These decisions will be difficult. As an end result, federal high cost support will
move money from one jurisdiction to another, from the federal jurisdiction to the states, from
low cost urban states to high cost rural states. Ultimately, I expect that there will be rural
states that believe they have not gotten enough support and urban states that believe they have
paid too much. But Congress has clearly set forth the goal of affordable and comparable
telecommunications services in all areas, rural as well as urban. We will fully implement
Congress's goal.
The first step taken by the Commission, before we committed a dime to schools and
libraries, was to move the existing high cost fund out of implicit access charges and into a
specific and predictable funding mechanism, as directed by the 1996 Act.
Second, we have listened to the rural carriers that have asked us to maintain existing
levels of support for now. Rural carriers will see no change in their support until 2001 at the
earliest.
With respect to non-rural carriers, the FCC has been working closely with the states in
reforming high cost universal service support. On Monday, we hosted an en banc panel of
the FCC and the Federal-State Joint Board on Universal Service. We heard from
representatives of states, industry, and consumer advocates who provided us with valuable
suggestions and insights.
We have been asked to refer a number of issues back to the Joint Board and I believe
we should do so. We will carefully define the issues and the time period in which the Joint
Board will have to act. In particular, there is the so-called "75/25" issue. Initially, the
Commission decided that it would continue to use interstate services to fund at least 25% of
the amount of high cost universal support needed by the states. This decision has been
mischaracterized as reducing federal support from 100% to 25%. That is not what happened,
and I will not allow federal support for rural America to be reduced.
I believe that it is necessary for the FCC to work closely with the states and with the
Joint Board to craft a workable solution to universal service reform. Additional time spent
working with the states and the Joint Board will be time well spent.
I have been listening to your concerns and we are taking action to push resolution of
these issues. We have a new Chief of the Common Carrier Bureau starting tomorrow and I
know she will keep us on track.
I also have spent a lot of time recently thinking about discounts for schools and
libraries. Here again we are confronting some serious issues. I have been looking forward to
today's hearing as an opportunity to clear the air on these issues, particularly as the volume
of the debate has increased in recent days.
From the public and from many in Congress I have heard strong words of support for
full funding of the discounts, at the $2.02 billion amount that was requested during the initial
application window by eligible schools and libraries that are trying to keep up with all of the
advances in telecommunications.
But I also have been listening to those of you who have voiced concerns, very
strenuously in some cases, about certain aspects of the mechanism for providing discounts to
schools and libraries. I want to discuss these concerns with you today, because ultimately the
FCC must implement the schools and libraries discounts in the manner prescribed by
Congress in the Telecommunications Act of 1996.
Some of you have complained that there is one corporation that oversees the schools
and libraries discounts, and another to administer the rural health care discount mechanism. I
understand the reasons for the separate corporations and I am impressed by the diligence and
efficiency that has marked their operations. The Schools and Libraries Corporation (SLC)
alone has processed over 30,000 applications, more than 50,000 phone calls, 7,000 e-mails,
and 1,200 faxes, all with a staff of just 14 employees. I am convinced that this organization
could not have functioned as quickly and efficiently had it been grafted onto a government
agency.
But we have heard from many of you that the two corporations should be rolled into
one, and so they shall be. As we stated in our May 8 Report to Congress, the FCC has
directed the corporations to submit by July 1 a proposal to bring the two corporations together
under a single entity. The restructuring will be completed by the end of the year, just as
prescribed by the Senate and House Conferees who prepared the report to the recent relevant
appropriations legislation.
Some of you complained that the boards of the two corporations established annual
salaries of $200,000 for their respective CEOs. While this is in line with CEO salaries at
similar non-profit corporations, we heard your concerns. In accordance with the
appropriations conference report, I have proposed to my colleagues that these salaries be
reduced and I expect the FCC to adopt that order by the end of this week.
What about the integrity of the process by which the Schools and Libraries
Corporation reviews applications and disburses funds? Some of you have raised concerns
about these functions. First, the FCC has defined which services are eligible for discounts
and which are not. Carpeting is not funded. Computers are not funded. Painting is not
funded. FCC staff has been working closely with the staff of the corporation to ensure these
guidelines are understood and followed.
In addition, schools and libraries must submit an approved technology plan with their
applications and must certify that they have sufficient independent funding to supply the other
resources, such as computers, teacher training, maintenance, and electrical connections, that
are not eligible for discounts but are necessary to make effective use of the discounted
services. We are not attempting to micromanage the manner in which schools set their
curricula or otherwise seek to give their students the benefits of these discounts. That is a
matter of local concern for local school boards and administrators to handle. But we will not
provide funding for services that will not be used.
And because the schools and libraries mechanism provides only for discounts, not free
services, all schools and libraries must pay out of pocket for all services they receive,
sometimes as much as 80% of the cost. This provides further assurance that the discount
mechanism will not be abused.
The Schools and Libraries Corporation has established a program integrity assurance
process to verify that discounts are provided only for eligible schools and libraries and only
for eligible services. The Corporation is rejecting applications that do not meet the
qualifications. And to ensure that all of these safeguards are being followed, I requested that
the Schools and Libraries Corporation undergo an independent audit of its procedures that
will be completed before any funds are disbursed. That audit is ongoing and SLC has made
changes in its procedures to respond to the auditors' suggestions.
I also believe that we must ensure that the most disadvantaged schools and libraries
get priority. From the very beginning we factored this concern into the discount matrix, with
the highest discounts going to the poorest schools and libraries, as determined by the
percentage of students in the district that qualify for the Federal school lunch program.
Priority for schools and libraries in the poorest areas has been a hallmark of the schools and
libraries discount mechanism since its inception. In addition, I have proposed further
modifications to our rules that will give even greater priority to the poorest schools and
libraries when demand exceeds the amount we can afford to fund.
What about the size of the fund? Based on public comment submitted in accordance
with our rulemaking procedures, the Commission initially set an annual cap of $2.25 billion
for services to eligible schools. During the initial application window, demand for services
by schools came in somewhat lower than the cap, at $2.02 billion. In seeking public
comment on the proper funding level, the Commission suggested an even lower figure, $1.67
billion. This amount would place no upward pressure on long distance rates, given the
amount of reductions in other costs that the FCC has ordered.
Some have suggested that demand was inflated because in addition to providing
discounts for telecommunications services and Internet access, the Commission also has
provided discounts for the internal connections that are needed to get the services to the
classrooms. The word classrooms appears in the key provisions of section 254, once in
section 254(b)(6) and again in section 254(h)(2)(A). The first of these provisions states that
one principle of universal service is to ensure that advanced telecommunications are provided
to elementary and secondary schools and classrooms. We aren't following the statute if
we don't get the services to the classrooms. Likewise, the second provision specifically
identifies the classrooms, not just the schools, as being the point where the services are
supposed to be received. After all, that s where the kids are.
If we did not support the internal connections that are necessary to get these services
to the classrooms it wouldn t hurt many of the schools in affluent neighborhoods. They have
demanded relatively little in the way of discounts for internal connections, presumably
because they already have internal connections. It is the schools, both public and private, in
the poorest areas that account for the lion s share of the requests for internal connections.
Almost $750 million was requested for internal connections by schools located in districts
where over half the kids are eligible for the school lunch program. And if we cut off
funding to the poor schools for internal connections, then we can cut off a lot of the funding
for telecom and Internet service as well, because those services are useless in schools that
aren t wired.
To cut out funding for internal connections gives the schools in more affluent areas
the real priority and leaves the kids at the poorer schools in the lurch.
How should the carriers recover their contributions to these funding mechanisms? I
suggest we just have a schools and libraries line item on every a bill. Less than a dollar per
month per line should cover it. It's simple, it's direct, and it's easy to understand.
More generally, I believe that carriers must be very clear with their customers as to
the impact of changes in the law and how that affects their rates. The cost of providing long
distance continues to decline because of FCC actions, and yet there is confusion among
consumers. We hear it from callers to our call center. We hear it from state commissioners.
And we hear it from you. I support legislation you have proposed that would require truth-in-
billing, and I have proposed a rulemaking addressing these issues.
Competition and Consumer Choice
My vision for telecommunications in the 21st century is a market with multiple
competitors and a panoply of choices for consumers. The model I want to support is
competition between companies and technologies within markets. Not consolidation and
vertical integration. Convergence should mean multiple competitors using various
technologies to compete with each other in all markets. Convergence should not mean
consolidation of various technologies into one vertically integrated monopoly, thereby
depriving the consumer of choice and its benefits of variety, innovation, and low cost.
Most importantly, let's not lose sight of the fact that competition is emerging. We're
seeing phone companies retool and redesign their networks to deliver sufficient broadband
capability to meet the needs of the digital marketplace. At the same time, cable companies
are doing much the same in a race to see which industry can deliver an affordable product to
the market. There really was a vision underlying the Telecommunications Act. And we're
beginning to see it materialize.
We see growing competition in the hundreds of state-approved interconnection
agreements between incumbents and competitive local exchange carriers ("CLECS") entering
the local telephone market. As of April 1998, the top 10 CLECS had switches in 132 cities
spanning 33 states and the District of Columbia. Approximately 2400 interconnection
agreements had been created under the 1996 Act's framework. And over the past two years,
$14 billion has been invested in CLECS, and their combined market capitalization has risen to
over $20 billion.
We also see competition for high volume customers. Twenty percent of the local
business market is being served by carriers other than the incumbent Bell Company. We see
competition in the investment going into cable modems and the restructuring of the high
speed data segment of the cable industry. We see growing competition in the increasing
interest on the part of the wireline industry in Digital Subscriber Line technologies, which
allow you to get expanded capacity similar to fiber from a copper loop. We see it in the fixed
wireless service providers, which have begun to offer service that competes with traditional
wired service. And we see it in the hundreds of satellites being put up for narrowband access
and also for nationwide, even worldwide broadband wireless data access.
The country is seeing many other benefits of the 1996 Act. For example, wireless
telephone prices are dropping rapidly and the number of subscribers now tops 50 million
nationwide. In the nine months from April to December 1997, prices for cellular and PCS
services dropped over 12% for low volume customers and over 31% for high volume
customers. In fact, the Wall Street Journal reported on March 3, 1998 that Bell Atlantic's
recent decision to reduce by 15% its rates for digital wireless phone service may well spark a
"price war" among cell phone service providers. Long distance rates, meanwhile, fell
approximately 6% between January 1996 and February 1998.
This is measurable progress. Of course, we have much further to go to reap the full
benefits of the 1996 Act. In particular, too few residential consumers yet have the
opportunity to choose among competing providers of local exchange services. There are
some promising prospects as cable companies and companies affiliated with utility companies
begin to provide residential, local telephone service, but competition has yet to blossom in the
residential market.
Section 271 Applications
The Commission will continue to carry out the Act's pro-competitive mandate, which
includes implementation of Sections 251, 253, and 254, as well as our review of Bell
company applications for entry into in-region interLATA services filed pursuant to Section
271. Our on-going dialogue with the BOCs and other interested parties is intended to
expedite the opening of local markets and BOC entry into long distance. But the Commission
cannot waive the statutory prerequisites contained in Section 271, including the competitive
checklist and the public interest requirement. For if a BOC is permitted to offer long distance
service before it has opened its local market to competition, then merger and consolidation
will be the only avenues into the local market available to the long distance carriers and other
potential competitors.
As I've discussed with the Chairman and other Members of this Subcommittee, the
Section 271 process is self-refining. Where the opening applications involved thousands of
pages of submissions and thousands of hours of evaluation, I believe the process will continue
to evolve to a point where successful applicants, well aware of how compliance with the
Act's market opening checklist can best be achieved, will submit applications noteworthy for
their brevity and their grantability. We look forward to that day.
We also expect later this year to issue a Notice of Inquiry pursuant to Section 706 of
the 1996 Act concerning the availability of advanced telecommunications capabilities, to
commence a proceeding to identify and reduce or eliminate market entry barriers, and to
conclude a proceeding on broadcast spectrum flexibility.
A Smarter, Leaner Commission for the Digital Age
In a fully realized competitive future, I also see a changed FCC. The Commission can
be smarter and leaner. Where we can be smaller, we should be, but we should not reduce
size if it means undermining enforcement of rules necessary to protect competition,
consumers, and the public interest.
As competition begins to develop, we can eliminate rules that become unnecessary.
But the FCC must still referee the competitive marketplace. I would remind you that
consumer protection, which takes priority in a competitive marketplace, requires a
commitment of resources.
Let me describe briefly for you some ways we have streamlined the agency in recent
months, and describe some ideas we have for how to work more efficiently in the future.
Competition Division
We recently abolished the Competition Division in the Office of General Counsel and
moved its functions to other parts of the agency. This does not reflect a diminished
commitment to competition, but simply a means to better utilize limited resources.
Office of Administrative Law Judges
Two of our five ALJs recently retired. We are not backfilling those positions, thereby
reducing the number by 40 percent.
National Call Center
In the reorganization of the Field Operations Bureau that led to the Compliance and
Information Bureau, we consolidated the public information services functions of the
Bureau into the National Call Center in Gettysburg, PA. Currently, there are 45
employees in the NCC, which since it began operation in June 1996 has responded to
more than 717,000 telephone inquiries on FCC actions, policies, and related issues.
Establishment of the NCC has already saved the FCC approximately $3 million dollars
per fiscal year in salary and benefits costs and allowed for the reallocation of 40 FTEs
to other critical work assignments.
o Public Information Services Bureau
Public Information Services is one of our four budget activities. The Public
Information Services activity covers the publication and dissemination of Commission
decisions and actions, and related activities; public reference and library services; the
duplication and dissemination of Commission records and databases; the receipt and
disposition of fact sheets, complaint information and other information related to the
rights of a consumer vis-a-vis communications services.
The public information service function is performed to some extent in a number of
the bureaus and offices. The largest group of employees performing this function is in
the National Call Center. The next largest group is in the Office of Public Affairs,
which has 49 employees who staff the reference room and library, answer phone calls
and respond to Internet inquiries from the public.
The Commission is studying whether efficiencies can be gained by consolidating this
function into one bureau or office.
Enforcement Bureau
A deregulated marketplace requires enhanced enforcement. The Enforcement activity
covers the enforcement of the Commission's rules and regulations, including
investigations, inspections, compliance monitoring and sanctions. Enforcement
includes the receipt and disposition of formal and informal complaints regarding
common carrier rates and services, the review and acceptance/rejection of carrier
tariffs, the review, prescription and audit of carrier accounting practices, the review
and enforcement of children's television, the receipt and disposition of cable rate
complaints, and the other public interest obligations of communications providers.
The enforcement function is performed in almost all of the Bureaus. The Commission
is studying whether efficiencies can be gained by consolidating this function into one
bureau.
We Need the Right Tools
We cannot create a leaner Commission by ourselves. We need Congress to give us
the full range of tools necessary to reshape the Commission and its staff. One such tool is
buyout authority. We need authority to buyout 100 permanent employees, and to replace
them with term appointments to handle our changing workload demands.
We also need the authority to carryover $5.1 million in Regulatory Fees ($1.7 from
FY95/96; $3.4 from FY97). The Senate has approved our using the funds; we are waiting to
hear from the House. The money will be used for electronic filing, electronic licensing and
public access initiatives; especially mission critical systems with Year 2000 implications.
We also need legislation to ensure that the goals of Section 309(j) of the
Communications Act are met, and that our auctions/licensing process is not completely
undermined by the bankruptcy courts. Congress undoubtedly never intended to allow
licensees to use the bankruptcy courts as a haven to horde valuable FCC licenses. Therefore,
to assist the Commission in rapidly reassigning spectrum licenses to parties that will put them
to the most efficient use, I strongly urge Congress to adopt legislation that would clarify that
provisions of the bankruptcy code (1) are not applicable to any FCC license for which a
payment obligation is owed; (2) do not relieve any licensee from payment obligations; and (3)
do not affect the Commission's authority to revoke, cancel, transfer or assign such licenses.
Congress should clarify that bankruptcy must not be used to hold auctioned licenses captive.
Finally, we need resources to complete the job of automating the Commission's
licensing processes and to implement electronic filing. In FY 1999, we will complete the
deployment of electronic filing capabilities for five of our largest licensing and registration
systems in the Cable Services, International, Mass Media, and Wireless Telecommunications
Bureaus, and in the Office of Engineering and Technology. We will also enable the public to
file electronically with us pleadings, comments and ex parte filings in informal rulemaking
proceedings. The FCC's experience to date with the new Universal Licensing System for its
wireless radio services demonstrates the benefits to both the Commission and industry from
automation and electronic filing. We cannot move the Commission into the electronic age
and realized all the benefits that result absent the necessary resources, which I am asking you
to support.
The 1998 Biennial Regulatory Review
In still other ways, the FCC will continue to move forward on the streamlining,
deregulation and reorganization that have been central to our operations in recent years. For
example, the FCC has begun a comprehensive "biennial review" of many of its existing
regulations, including telecommunications and broadcast ownership regulations, as directed by
the 1996 Act. Section 11 of the Communications Act, as amended by the
Telecommunications Act, requires the FCC, in every even-numbered year, to review all of its
regulations applicable to providers of telecommunications services to determine whether they
have become unnecessary to advance the public interest as the result of meaningful economic
competition between providers of the services and whether such regulations should therefore
be repealed or modified. Section 204(h) of the Telecommunications Act also requires the
Commission to review its broadcast ownership rules biennially as part of the review
conducted pursuant to Section 11. The Commission, however, determined that this first
biennial regulatory review presented an excellent opportunity for a serious top-to-bottom
examination of the Commission's regulations, not just those required to be reviewed under the
statute.
Thus, on February 5, 1998, Commission staff released a list of 31 proceedings it
proposed to be initiated as part of the 1998 biennial review. The proposed proceedings are
aimed at eliminating or modifying regulations that are overly burdensome or no longer in the
public interest. The list, which is attached to my testimony, was compiled following a broad,
comprehensive internal review of all existing FCC regulations and informal input from the
industry and the public through, for example, public forums at the Commission with the
practice groups of the Federal Communications Bar Association. The Commission will
continue to solicit public input as the process continues.
The list includes a review of all broadcast ownership rules that are not already the
subject of a pending Commission proceeding and a wide array of common carrier rules, such
as the Part 32 uniform system of accounts rules, Part 41 telegraph and telephone franks (or
free service) rules, Part 43 reporting rules, Part 61 price cap rules, Part 62 interlocking
directorate rules, Part 63 international certificate rules, Part 64 customer premises equipment
bundling rules, and Part 68 equipment rules.
We have outlined here a very ambitious agenda for the Commission that should result
in a substantial amount of further deregulation and streamlining. This project is very
important to me. My support for it stems from my 10 years of experience as a
communications lawyer in private practice where I gained a keen understanding of the impact
of regulation on the marketplace and in particular the costs of regulation. I thus believe it is
essential that the FCC look carefully at its rules and internal organization and procedures to
ensure that its rules and operations are as streamlined as possible. We must do so to eliminate
unnecessary burdens on the industries we regulate and to make sure that the Commission is
operating as effectively and efficiently as possible. I am therefore pleased that the
Commission is in a position to ensure that its first biennial regulatory review will, consistent
with congressional mandate, produce concrete results in many areas of the Commission's
operations.
Indeed, numerous biennial review proceedings have now been initiated by the
Commission. For example, we have begun proceedings to consider eliminating certain
interconnection plans that the Bell Operating Companies file under our Computer III rules,
streamlining filing requirements for wireless common carriers and other wireless licensees,
reviewing our broadcast ownership rules, and streamlining and simplifying the broadcast
licensing process and deregulating radio frequency lighting requirements. Several other
biennial review proceedings, including several involving common carrier rules, are pending
before the Commission on circulation and will be acted upon in the weeks to come.
In addition to the biennial review, I have also established a staff team to review FCC
functions that can be eliminated or performed by private parties. This will be a top-to-bottom
review of all functions performed by the staff and will likely lead to both rule changes and
proposed legislation. Such a review is essential at a time when the Commission's workload
continues to grow but its staffing levels do not.
The Commission is also examining the staffing levels of all its bureaus and offices,
and is adjusting staffing levels through reassignments and attrition. This staffing review is
critical as the demands on the FCC change due to new legislative mandates, changes in our
regulated industries, and workload changes resulting from electronic filing.
Legislative Proposals
The Commission is looking for additional ways that the Communications Act might be
amended to permit further deregulation and streamlining. For example, expanding our
authority to forbear from regulation; authorizing the FCC to use staff buyouts to downsize
and reshape the Commission's personnel mix; and increasing the Commission's authority to
license use of the spectrum by rule rather than by individual application -- each would enable
us to deregulate and streamline.
Some additional ideas the Subcommittee might consider include eliminating the
comparative renewal process for services such as cellular and personal communications
service so they are not subject to a more stringent regulatory process than broadcasters, and
allowing the Commission to dispense with the requirement of prior approval for pro forma
transfer of control and assignments of radio licenses where the Commission finds that it
serves the public interest.
I have directed our staff to prepare a package of legislative proposals to deregulate and
streamline, as well as to enhance competition, strengthen enforcement, and promote consumer
choice. I look forward to sharing these proposals with you, and to working with the
Subcommittee on their implementation.
1998 Agenda
For the rest of this year, our agenda will be dominated by our efforts to implement the
1996 Act's "pro-competitive, deregulatory national policy framework," to bring greater
competition to all communications markets, and to ensure that universal service and other
public interest provisions of the Act are fully implemented in a manner that, consistent with
congressional intent, yield the best results for the American people. At the top of my
priorities will be the effort to deliver affordable choice in telecommunications, especially local
telecommunications, to the American people. We must especially strive to see that choice
among local telephone providers becomes a reality for more residential subscribers.
We will continue to seek ways to increase competition with cable television, and to
assess the nature and causes of cable programming cost increases. Competition gives
consumers access to the most desirable services at reasonable rates. Until that competition
develops, we will seek explanations for recent rate actions. That is why I ordered our Cable
Services Bureau to seek more information on the sources of recent cable rate increases. On
May 15, 1998, the Bureau distributed a voluntary inquiry to the six largest cable companies to
learn why programming costs have risen and to learn more about revenues from advertising,
commissions and launch fees that cable operators earn from sources other than subscriber
charges. The results of this inquiry will lend insight into the increases that cable operators
have taken recently and should assist the Congress in its review of cable matters.
We must also finish the implementation of digital television (DTV). This includes the
establishment of not just the service rules and allotment plans, but also must-carry rules,
public interest obligations, and fees for ancillary and supplemental services.
We will also continue to work closely with our Local and State Government Advisory
Committee to address Federal-state-local issues such as preemption, placement of transmission
towers for wireless and DTV services, public rights-of-way, and removal of state and local
governmental barriers to telecommunications market entry. Recently, we announced the
creation of a DTV tower strike force, chaired by Commissioner Ness, to target potential
problems in the implementation of digital TV and to work with local authorities and
broadcasters to expedite implementation of DTV.
We must also continue to streamline our licensing procedures and to act as
expeditiously as possible to ensure that innovative new technologies using satellites can enter
the marketplace quickly. For example, the first wave of new global satellite systems capable
of providing high speed voice, video and data on-demand are scheduled to start providing
service this fall.
Along with its appetite for ever-increasing computing power, our nation will have an
ever more voracious appetite for data transmission capacity or "bandwidth." The key to
satisfying this appetite will be to create real opportunities for companies to compete to deliver
high bandwidth services over the "last mile" to consumers. Competition in our backbone
networks today is driving backbone providers to keep increasing the capacity and speed of the
backbones. We need to bring that competitive drive to expand capacity and improve service
to the final links to consumers.
Finally, throughout all of our proceedings, we must seek to ensure that our booming
communications markets are creating opportunities for participation for all Americans. We
must move forward to ensure that we are providing opportunities for employment, access and
ownership, especially for those who remain underrepresented in the ownership and
employment ranks of communications businesses-- minorities, women and the disabled. The
communications and information industries represent the fastest growing sectors of our
economy -- over $800 billion last year. We should seek to create and expand opportunities in
every sector of the communications marketplace and do all we can to make sure that no one
is left behind.
With regard to the disability community, for example, last August, the Commission
adopted rules to increase the amount of closed captioned video programming available to the
22 million Americans with hearing disabilities, regardless of whether they receive their
television signals from cable, DBS, wireless cable or through over-the-air broadcasting. This
is a vitally important step in making sure that persons with disabilities get access. In April,
we also initiated a rulemaking proceeding under Section 255 of the Communications Act to
facilitate access to telecommunications equipment by persons with disabilities.
Recent Accomplishments
Indeed, I am proud of what we have already accomplished in my first seven months as
Chairman of the FCC. Here are some highlights of our accomplishments:
o In November 1997, at my first meeting as FCC Chairman, the Commission revised
its rules for foreign entry in light of the World Trade Organization Agreement on Basic
Telecommunications Services, which took effect last month. We did so by adopting
companion telecommunications and satellite entry orders liberalizing entry into the U.S.
market for foreign-licensed service providers while retaining competitive safeguards.
Implementation of the WTO Agreement will fundamentally alter the competitive landscape of
the global market in telecommunications services, providing vast opportunities for American
industry. Increased competition in the international market will also hasten the decline in
international calling rates. In November, we also proposed rules to implement the
Commission's new authority to auction certain mutually exclusive broadcast licenses;
streamlined the process for reviewing and resolving formal complaints against
telecommunications carriers; and adopted policies that permit non-U.S. licensed satellites to
provide services in the United States.
o In December 1997, we adopted a Notice of Proposed Rulemaking (NPRM) to
strengthen our program access rules in order to boost competition with cable in the
multichannel video marketplace; we approved an order to ensure that 911 emergency calls
will work nationwide on all cellular telephones; we conducted the first in a series of special
en banc presentations, this one on the status of competition in the multichannel video
marketplace; we launched a proceeding to determine the appropriate methodology for
assessing fees for ancillary and supplemental services provided by digital broadcasters in
implementation of the Communications Act; and we announced our first ever "biennial
review" of the FCC's rules and regulations in a common sense, comprehensive fashion.
o In January 1998, we released our fourth "Annual Assessment of the Status of
Competition in Markets for the Delivery of Video Programming," as required by Section
628(g) of the Communications Act. A major finding of the report was that cable still controls
approximately 87 per cent of the multichannel video marketplace. I directed our Cable
Services Bureau to undertake a review of our cable rate regulations and an investigation of
the nature and causes of rising cable rates and programming costs. We released our annual
survey report on cable industry prices pursuant to Section 623(k) of the Communications Act.
We also adopted price disclosure requirements for away-from-home public telephone calls to
help end price gouging by operator service providers.
o In February 1998, we adopted an NPRM to help us implement our new Universal
Licensing System for wireless radio services. This initiative will automate our licensing and
application functions for these services with state of the art technology. We are consolidating
and streamlining our current 11 wireless databases into one unified, integrated system, and
reducing or eliminating many of our existing rules. We also adopted final rules, policies and
channel assignments for the new video age of DTV; adopted an order to further the privacy
rights of telecommunications customers; and proposed to simplify and consolidate our service
rules governing the Direct Broadcast Satellite (DBS) service as well as sought comment on
whether we should impose alien ownership restrictions on the DBS service, and possible
DBS-cable cross-ownership restrictions.
o In March 1998, we approved the revised voluntary industry system for rating TV
video programming and adopted technical rules to implement the accompanying "V-chip"
program blocking technology. These actions will help put these important tools in the hands
of American parents. We also adopted a Notice of Inquiry to examine all of our major
broadcast ownership rules as part of our "biennial review."
o In April 1998, we proposed rules to promote access to telecommunications services
and equipment for persons with disabilities. This implemented Section 255 of the
Telecommunications Act of 1996, the most significant governmental action for people with
disabilities since passage of the Americans with Disabilities Act of 1990. In April, we also
proposed or adopted rules to streamline the broadcast application and licensing process,. to
simplify and streamline the equipment authorization process, and to allow the public to file
rulemaking comments and other pleadings electronically on the Internet in many FCC
rulemaking proceedings.
o In May 1998, we proposed ways to enhance the quality of existing
telecommunications relay service, and expand such service for the 2.5 million Americans with
speech disabilities, proposed to streamline the equipment approval process for devices that
emit radio frequency energy and for terminal equipment that may be attached to the telephone
network, and adopted the "Third Annual Commercial Mobile Radio Service Competition
Report" to Congress.
Plans for the Coming Fiscal Year
Turning to our future plans and policies, here are some examples of what we hope to
accomplish during the coming fiscal year in each of the FCC's four primary activity areas: 1)
authorization of service; 2) policy implementation and rulemaking; 3) enforcement; and 4)
public information services.
Authorization of Service: We will continue to promote efficient and innovative
licensing and authorization of services by meeting established Speed of Disposal goals and by
using auctions whenever feasible to license or authorize telecommunications services quickly
and efficiently, including the auctioning of mutually exclusive broadcast licenses pursuant to
the Balanced Budget Act of 1997. We also intend to process applications to construct digital
TV stations which conform to their original allotment sites within five days of receipt. In
addition, we anticipate a significant number of applications under Section 271 of the
Communications Act from Bell Operating Companies seeking authority to provide in-region
long distance service, each of which must be resolved within 90 days. Finally, we will
simplify and streamline the entire broadcast licensing process by reducing filing burdens,
simplifying application forms, and re-engineering and integrating 13 Mass Media Bureau
licensing and authorization of service databases.
Policy Implementation and Rulemaking: We will encourage competition in the
telecommunications industry through pro-competitive, deregulatory rulemakings that reduce
consumer costs and increase the telecommunications choices available to consumers. For
example, we must continue to implement the local competition provisions of the
Communications Act, review, revise, and eliminate rules to reflect changing marketplace
conditions, including forbearing from rules that competition makes unnecessary to protect the
public interest, and review requests for preemption of state and local laws or actions that
create barriers to offering any telecommunications service.
We will continue to implement the World Trade Organization Basic Services
Agreement. This Agreement will allow carriers from WTO-member nations to apply for
authorization to provide competitive telecommunications services to United States customers
and will open doors to United States carriers seeking to offer telecommunications in overseas
markets. We will also seek to ensure that public safety groups have adequate spectrum and
advanced telecommunications equipment by completing the development of operational,
technical and spectrum requirements for meeting Federal, State and local public safety agency
communications requirements through the year 2010. We will continue to explore all means
of promoting competition in the marketplace for multichannel video programming.
Enforcement: The importance of the enforcement of the Commission's rules has
increased in an era of deregulation and increased competition. Common carrier oversight, for
example, is required to ensure that consumer abuses such as the unauthorized transfer of long
distance carriers, also known as "slamming", are curtailed. We are also examining ways to
strengthen enforcement of our cable program access rules so that new market entrants can
more readily and fairly obtain access to the programming they need to become viable
competitors to incumbent multichannel video programming distributors. Moreover, increased
use of the radio spectrum and the marketing of new electronic equipment have greatly
increased potential interference problems. There has also been an increase in unauthorized
"pirate" radio stations. In the last eight months, the Commission has been successful in
shutting down over 200 "pirate" radio stations. We have also just completed a state-by-state
inventory of remaining "pirate" stations and there are approximately only 100 such stations
remaining on the air. We intend to take action regarding these stations as soon as possible.
Overall, it is important for the Commission to adopt a new paradigm for enforcement
that relies more on companies to certify that they are in compliance with our regulations, but
with increased enforcement for non-compliance. Swift, predictable, and sufficient enforcement
is critical as we move toward competition.
We also intend to strengthen our enforcement program by using the latest technical
and engineering techniques to improve interference and consumer complaint resolution, by
partnering with the private sector and with other governmental units to resolve shared
telecommunications issues, and by using industry and customer feedback to determine
effective levels of enforcement and appropriate enforcement policies and procedures.
Public Information Services: Our goal in this area will be to provide information
services to our customers in the most useful formats available and in the most timely,
accurate and courteous manner possible. We will accomplish this goal in a variety of ways:
through attaining true nationwide coverage at our National Call Center (NCC), by providing
"one stop" information shopping to our customers through the consolidation of our nine
public reference rooms into one, if and when we move to the Portals, by enhancing consumer
outreach efforts, and by enlarging our databases to be more inclusive and reflective of the
nation's population, including those still without routine access to the Internet.
In FY 1999, we hope to complete the final phase of the NCC project which provides
information on every aspect of the FCC through a toll-free number that can be accessed by
anyone within the United States dialing 1-888-CALL FCC (225-5322), or by TTY at 1-888-
TELL FCC (835-5322).
The NCC, along with the FCC's Internet Website, www.fcc.gov, and the FCC's Office
of Public Affairs, Public Service Division, form the backbone of the FCC's educational and
information outreach programs. During the first five months of 1998, the FCC's Home Page
received an average of 240,000 hits per day, up from an average of 138,000 hits per day
during the same period in 1997. During the first five months of this year, the Public Service
Division received 17,013 e-mail requests for information, up from 7,782 requests received last
year by this time. This year to date we have already received 4,070 letters from Congress, a
4% increase over the same period last year.
I would also like to share with you a few illustrative examples of the workload
pending before five of the FCC's operating bureaus as we carry out our continuing statutory
mandate:
Cable Services Bureau. The Cable Services Bureau is responsible for more than rate
regulation. For example, the Bureau plays a critical role in advancing competition in the
video industry by, for example, ensuring access to video programming by competitors of
incumbent cable operators. It also plays an important role in advancing telecommunications
competition by for example, ensuring access by new telecommunications providers to utility
poles and infrastructure on reasonable terms. Next week the Bureau will present to the
Commission recommended rules for making available to the public digital set-top boxes with
integrated security devices, as required by the Telecommunications Act. The Bureau is also
preparing recommendations for the Commission's upcoming proceeding to examine rules and
policies for must-carry in a digital era.
With respect to its other statutory responsibilities, as of this Spring the Bureau's
Consumer Protection and Competition Division had 583 matters pending before the division,
including petitions, complaints, and rulemakings. These matters are overwhelmingly filed by
private parties or local governments. Among these petitions and complaints, for example, are
approximately 80 mandatory signal carriage or "must-carry" cases, 73 requests to modify
"areas of dominant influence" to receive different television programming, and over 260 rate
regulation appeals. The Financial Analysis and Compliance Division of the Bureau,
meanwhile, had approximately 750 rate complaints pending.
Common Carrier Bureau. The Common Carrier Bureau expects to make policy
recommendations to the Commission on over 60 major, Commission-level proceedings in the
second quarter of 1998 alone. This figure does not include any number of Bureau-level
proceedings that the Bureau will complete during the same three month period. One
telecommunications area in particular that has exploded as a result of both more competition
and deregulation has been informal complaints and inquiries. In 1995, for example, the
Enforcement Division of the Common Carrier received 25,482 complaints and inquiries about
various telephone consumer abuses and concerns such as "slamming" and disputed billing
charges. In 1997, the number of such complaints nearly doubled to over 44,000.
International Bureau. The International Bureau plans to present to the Commission 18
items between June 1 and September 30, 1998. Two major growth areas for the Bureau
include satellite space station applications and Section 214 applications. The number of
applications received for satellite space stations increased from 164 in FY 1996 to 195 in FY
1997 (a 19% increase). The number of Section 214 applications increased from 564 in FY
1995 to 637 in FY 1996 (a 13% increase). In FY 1997, the number of Section 214
applications received increased 17% to 745.
In addition to the increase in the number of applications over the years, there is more
complexity involved in processing International Bureau applications. Service providers are
developing innovative services, requiring significantly more bandwidth, and at the same time
seeking to co-exist with established services while sometimes also requiring global
coordination.
These new services additionally require the Bureau to initiate licensing rounds,
develop service rules and, in most instances, coordinate with other domestic users of the
spectrum. Just getting one new service off the ground is extremely time and labor intensive
as it invariably raises new legal issues and poses technical challenges. The Bureau currently
has four new services -- 2 GHz, 28 GHz, 40 GHz and the Skybridge FSS LEO system -- for
which proceedings must be initiated and completed prior to commercial satellite use of the
spectrum. Finally, the International Bureau also must develop methods for implementing the
recent commitments made to open the United States market to foreign satellite systems.
Mass Media Bureau. In the Mass Media Bureau, the elimination of radio ownership
limits by the Telecommunications Act dramatically increased the volume of radio sales
applications. For example, in 1995, we received 2300 such applications. In 1996 the number
increased to 3700. In 1997, it was more than 4100. During the first five months of 1998,
radio sales applications have continued to come to the FCC at a higher rate than even in
1997. In another mass media area, political programming regulation, because this is a mid-
term election year, during the next six months we expect to receive approximately 1000
phone calls a month from broadcasters, political candidates and their media buyers.
Wireless Telecommunications Bureau. Finally, the Wireless Telecommunications
Bureau intends to bring to the Commission for its decision approximately 36 items by the end
of September. The Bureau also plans to conduct six auctions during the rest of 1998,
assuming the Commission completes the pending policy and rulemaking items. As of May 29,
1998, the Wireless Bureau has pending 372 informal complaints and 22 formal ones. The
scope of the Bureau's "Universal Licensing System" noted above is also worth discussing in
more detail. The "ULS" is a complete change and redesign of the Wireless Bureau's entire
licensing theory and process. It will directly affect literally millions of wireless licensees,
applicants, and the public who need access to our wireless data. Under the ULS: 41 forms
will be collapsed into 5; 800,000 person hours annually will be saved by licensees due to
electronic filing of applications; 11 databases will be reduced into one, affecting over 2
million licensees; on line data access and computer mapping of service areas will be available
to the public from anywhere in the world; and perhaps most significantly, the FCC will be
able to delete over 200 wireless regulations from the Code of Federal Regulations.
Conclusion
I appreciate greatly the Subcommittee's interest in the Commission and matters
pending before it. Thank you for this opportunity to testify today. I would be pleased to
answer any questions.